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After recording the transactions in the journal, recorded entries are classified and grouped into by preparation of accounts and the book, which contains all set of accounts (viz. personal, real and nominal accounts), is known as Ledger. It is known as principal books of account in which account-wise balance of each account is determined.
2. SPECIMEN OF LEDGER ACCOUNTS
A ledger account has two sides-debit (left part of the account) and credit (right part of the account). Each of the debit and credit side has four columns. (i) Date (ii) Particulars (iii) Journal folio i.e. page from where the entries are taken for posting and (iv) Amount.
The process of transferring the debit and credit items from journal to classified accounts in the ledger is known as posting.
3.1 RULES REGARDING POSTING OF ENTRIES IN THE LEDGER
1. Separate account is opened in ledger book for each account and entries from ledger posted to respective account accordingly.
2. It is a practice to use words ‘To’ and ‘By’ while posting transactions in the ledger. The word ‘To’ is used in the particular column with the accounts written on the debit side while ‘By’ is used with the accounts written in the particular column of the credit side. These ‘To’ and ‘By’ do not have any meanings but are used to represent the account debited and credited.
3. The concerned account debited in the journal should also be debited in the ledger but reference should be of the respective credit account. For example: Rent paid by cash ` 500. The journal entry for this transaction would be.
4. BALANCING AN ACCOUNT
At the end of the each month or year or any particular day it may be necessary to ascertain the balance in an account. This is not a too difficult thing to do; suppose a person has bought goods worth 1,000 and has paid only 850; he owes ` 150 and that is balance in his account. To ascertain the balance in any account, what is done is to total the sides and ascertain the difference; the difference is the balance. If the credit side is bigger than the debit side, it is a credit balance. In the other case it is a debit balance. The credit balance is written on the debit side as, “To Balance c/d”; c/d means “carried down”. By doing this, two sides will be equal. The totals are written on the two sides opposite one another.
Then the credit balance is written on the credit side as “By balance b/d (i.e., brought down)”. This is the opening balance for the new period. The debit balance similarly is written on the credit side as “By Balance c/d”, the totals then are written on the two sides as shown above as then the debit balance written on the debit side as, “To Balance b/d”, as the opening balance of the new period.
It should be noted that nominal accounts are not balanced; the balance in the end are transferred to the profit and loss account. Only personal and real accounts ultimately show balances. In the illustration given above, one will have noticed that the capital account, the purchases account, sales account, the discount account, the rent account and the salary account have not been balanced. The capital account will have to be adjusted for profit or loss and that is why it has not been balanced yet.
Illustration 1 Prepare the Stationery Account of a firm for the year ended 31.12.2011 duly balanced off, from the following details:
Illustration 2 Journalise the following transactions in the books of a trader
Debit Balance on January 1, 2011
Cash in Hand 8,000, Cash at Bank 25,000, Inventory of Goods 20,000, Building 10,000. Trade receivables: Vijay 2,000 and Madhu 2,000.
Credit Balances on January 1, 2011:
Trade payables: Anand 5,000. Capital 55,000
Following were further transactions in the month of January, 2011:
The following data is given by Mr. S, the owner, with a request to compile only the two personal accounts of Mr. H and Mr. R, in his ledger, for the month of April, 2011.
1 Mr. S owes Mr. R 15,000; Mr. H owes Mr. S 20,000.
4 Mr. R sold goods worth 60,000 @ 10% trade discount to Mr. S.
5 Mr. S sold to Mr. H goods prices at 30,000.
17 Record a purchase of 25,000 net from R , which were sold to H at a profit of 15,000.
18 Mr. S rejected 10% of Mr. R’s goods of 4th April.
19 Mr. S issued a cash memo for 10,000 to Mr. H who came personally for this consignment of goods, urgently needed by him.
22 Mr. H cleared half his total dues to Mr. S, enjoying a ½% cash discount (of the payment received, 20,000 was by cheque).
26 R’s total dues (less 10,000 held back) were cleared by cheque, enjoying a cash discount of 1,000 on the payment made.
29 Close H’s Account to record the fact that all but 5,000 was cleared by him, by a cheque, because he was declared bankrupt.
30 Balance R’s Account.
(1) Sale of 10,000 on 19th April is a cash sales, therefore, it will not be recorded in the Personal Account of Mr. H; and (2) On 22nd April, Mr. H owes Mr. S 90,000, amount paid by Mr. H ½ of 90,000 less ½% discount i.e. 45,000– 225 = 44,775. Out of this amount, 20,000 paid by cheque and the balance of 24,775 in cash.